Optimal actions of an agent facing a Shannon capacity constraint on the translation of an uncertain signal into an action can easily turn out to be discretely distributed, even when the objective function and the initial distribution of uncertainty contain no discrete elements. We show this...

Rational inattention theory is economic theory that recognizes that people have finite information-processing capacity, in the sense of Shannon and engineering information theory. This approach is still in the early stages of development, but it promises to provide a unified explanation for some...